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Canada's State of Trade: Trade and Investment Update – 2009

II. Overview of World Trade Developments

Against a backdrop of slowing world economic growth and highly volatile prices for primary commodities, world merchandise exports in nominal dollar terms rose 15 percent in 2008, to US$15.8 trillion, while exports of commercial services increased 11 percent to US$3.7 trillion. The faster growth of merchandise trade may be explained by rising commodity prices during the year, especially the 40 percent increase in energy costs.

The months since September saw precipitous drops in global trade. A notable aspect of the current slowdown in world trade and output is its synchronized nature. Monthly exports and imports of major developed and developing economies fell in unison over the latter part of the year.

In real terms, growth in world merchandise trade plunged to 2.0 percent in 2008, down from 6.0 percent in 2007. The four percentage-point decline brought real merchandise export growth in line with real global output growth, which expanded by 1.7 percent.

The differences in real trade growth between regions remained large, reflecting marked variations in economic activity and relative price movements. The overall picture was one of continuing growth in the first half of the year, with oil exporting countries in particular benefiting from record high commodity prices. This was followed by faltering growth and the beginnings of a severe downturn in the second half, starting in the United States and other developed countries, and then spreading to developing countries.

Merchandise Trade

Trade Values (nominal trade)

The value of world merchandise exports increased by 15 percent in 2008, to US$15.8 trillion—a pace slightly lower than the 16 percent rate registered in 2007. The annual trade figures in dollar terms were strongly influenced by changes in commodity prices and exchange rates in 2008. Despite the fact that fuel prices ended 2008 at a lower level than at any point in 2007, average prices for 2008 were about 40 percent higher than in 2007, which tended to raise total merchandise imports for most countries.

There was a very evident dichotomy between the developed and developing economies in trade performance over 2008. Slower rates of growth for merchandise exports and imports were recorded by the developed economies than by the developing economies.

Starting with North America, exports advanced 10 percent to US$2.0 trillion in 2008, while imports rose 7 percent to US$2.9 trillion. Within this region, exports from the United States advanced at the fastest pace (12 percent), while they lagged from Canada (up 8 percent) and Mexico (up 7 percent). Imports into Mexico rose by 9 percent, while they rose by 7 percent for both Canada and the United States (Table 2-1).

As in North America, European trade expanded at slower rates than did world trade. For this region, both exports and imports grew by 12 percent in 2008, as exports reached US$6.5 trillion and imports US$6.8 trillion. Exports from Germany, France and Italy grew at rates slightly below the regional level while their imports grew slightly faster than the regional level. Trade involving the United Kingdom has been much weaker than that of its three other G7 European counterparts. British exports grew by a modest 4 percent last year after having declined by 2 percent the year before, while growth in imports fell to 1 percent from 4 percent in 2007.

Japanese exports grew in line with their G7 counterparts, with the exception of the UK, as exports advanced by 10 percent in 2008 to US$782 billion. However, imports into Japan grew at a considerably faster pace, at 22 percent, to reach US$762 billion: this increase was also much faster than the 7 percent increase recorded in 2007.

The developing economies experienced much more robust growth in trade in 2008. The Middle East enjoyed the fastest export growth of all regions in 2008, as exports expanded by 36 percent to US$1.0 trillion, driven by oil revenues. For the region, exports by value grew at more than double the 16 percent rate observed in 2007. Imports into this region climbed 23 percent to US$575 billion.

The Commonwealth of Independent States (CIS) experienced robust growth of both exports and imports, resting on the strength of the region's extractive industries. Exports jumped by 35 percent to US$703 billion, while imports were up by 31 percent to US$493 billion.

Africa, like other regions rich in natural resources, also saw strong growth in exports and imports in 2008. Exports rose 29 percent to US$561 billion, and imports increased to US$466 billion, up 27 percent over the previous year.

South and Central America registered faster expansion in both export and imports in 2008 than in 2007. Exports advanced 21 percent last year compared to 14 percent in 2007, while imports climbed by 30 percent versus 25 percent the year before.

A drop in the rate of expansion of Chinese exports helped to limit the growth in exports from Asia to 15 percent in 2008. Chinese exports grew by 17 percent in 2008 compared to 26 percent a year earlier. Imports experienced faster growth in 2008 than in 2007—20 percent versus 15 percent—led by strong increases in the Asian NIEs6 and the previously mentioned jump registered by Japan.

Trade Volumes (real trade)

Merchandise trade in volume terms expanded by 2.0 percent in 2008, down from 6.0 percent in 2007 and below the 5.7 percent annual average rate registered over 1998-2008. The region that exhibited the most robust trade performance in real terms in 2008 was the Commonwealth of Independent States. This region recorded the fastest export volume growth, at 6.0 percent, and had the second-highest import growth rate, with a 15.0 percent expansion over the previous year.

Both export and import volumes for Africa slowed in 2008, dropping to 3.0 percent in 2008 from 4.5 percent in 2007 for exports, and to 13.0 percent from 14.0 percent for imports.

The growth of the Middle East's export and import volumes also slowed in 2008, falling from 4.0 percent to 3.0 percent for exports, and from 14.0 percent to 10.0 percent for imports.

South and Central America saw exports expand by 1.5 percent, a rate slightly lower than the world average. However, the region had the highest rate of import growth at 15.5 percent. These rates were down from 2007, when export volumes increased by 3.0 percent and import volumes were up by 17.5 percent.

Growth in Asian trade volumes fell substantially in 2008 compared to 2007. For exports, volumes increased by 4.5 percent compared to 11.5 percent the previous year, while for imports, volumes increased by 4.0 percent, half of the 8.0 percent pace recorded a year earlier. The declines were widespread, but were steepest for China (where export growth slowed to 8.5 percent from 19.5 percent and import growth fell to 4.0 percent from 13.5 percent) and India (where export growth slowed to 7.0 percent from 13.0 percent to and import growth slowed to 12.5 percent from 16.0 percent).

Europe registered the slowest growth of any region in 2008, with export volumes up only 0.5 percent and import volumes falling by 1.0 percent. This was in marked contrast to 2007, when both export and import volumes expanded by 4.0 percent.

Finally, in North America, real merchandise exports grew at a pace below the world average for the second consecutive year, expanding by 1.5 percent in 2008, notwithstanding a 5.5 percent increase in the volume of U.S. exports in U.S. dollar terms. For imports, volumes fell 2.5 percent for the region, pulled down by a 4.0 percent decline in U.S. import volumes.

Prices and Exchange Rates

Significantly higher energy prices in 2008 had a strong effect on nominal merchandise trade values and growth rates compared to 2007. The cost of a barrel of oil7 rose to over US$140 in early July, peaking at US$145.28 on July 3. However, prices turned down after July and ended the year below US$45 per barrel on December 31, as world oil demand moderated and the global economy slowed. Nonetheless, energy prices rose 40 percent on average last year. Beyond energy, prices for food and beverages increased 23 percent in 2008, while agricultural raw material prices fell by less than 1 percent, and metals prices dropped 8 percent, according to the IMF.

The appreciation of the US dollar against other currencies in late 2008, especially against the euro, also influenced trade developments recorded in nominal terms. The growth of trade in euro-zone countries is probably understated as a result of being expressed in dollars. The strengthened dollar appears in large measure to be the result of a flight to a perceived "safe haven" currency.

The Canadian dollar, British pound and Korean won have followed similar trajectories as that of the euro, first appreciating against the dollar in recent years then reversing this trend sharply as the financial crisis worsened. The Chinese yuan has risen gradually against the dollar since 2005, but remained fairly stable during the latter half of 2008 amid increasing turmoil in financial markets. The Japanese yen also appreciated sharply.

Leading Merchandise Traders by Value

The value of Germany's merchandise exports (up 11 percent in 2008) was slightly larger than faster-growing China's (up 17 percent), as Germany retained its position as the world's leading merchandise exporter (Table 2-2). That country's share in world merchandise exports was 9.1 percent, compared to 8.9 percent for China.

Table 2-2aLeading Exporters in World Merchandise Trade 2008 (US$)

2008 Rank

2007 Rank

2008 Value

2008 Share

Germany

1

1

$1,465,000,000,000

9.1%

China

2

2

$1,428,000,000,000

8.9%

United States

3

3

$1,301,000,000,000

8.1%

Japan

4

4

$782,000,000,000

4.8%

Netherlands

5

6

$634,000,000,000

3.9%

France

6

5

$609,000,000,000

3.8%

Italy

7

7

$540,000,000,000

3.3%

Belgium

8

9

$477,000,000,000

3.0%

Russia

9

-

$472,000,000,000

2.9%

United Kingdom

10

8

$458,000,000,000

2.8%

Canada

11

10

$456,000,000,000

2.8%

Table 2-2bLeading Importers in World Merchandise Trade 2008 (US$)

2008 Rank

2007 Rank

2008 Value

2008 Share

United States

1

1

$2,166,000,000,000

13.2%

Germany

2

2

$1,206,000,000,000

7.3%

China

3

3

$1,133,000,000,000

6.9%

Japan

4

4

$762,000,000,000

4.6%

France

5

6

$708,000,000,000

4.3%

United Kingdom

6

5

$632,000,000,000

3.9%

Netherlands

7

8

$574,000,000,000

3.5%

Italy

8

7

$556,000,000,000

3.4%

Belgium

9

9

$470,000,000,000

2.9%

Korea

10

-

$435,000,000,000

2.7%

Canada

11

10

$418,000,000,000

2.5%

Source: WTO and author's calculations.

The United States and Japan held onto the third and fourth spots, at 8.1 percent and 5.0 percent of world shares, respectively.

EU nations held onto most of the remaining top ten positions. Amongst the major EU exporting nations, the Netherlands posted the strongest growth, at 15 percent, surpassing France and moving into fifth spot. France fell to sixth spot and Italy held onto seventh place. Slow growth in British exports, at only 4 percent, caused that nation to slip from eighth spot to tenth, while Belgium moved up one ranking to eighth spot.

Backed by strong energy prices, Russian exports vaulted 33 percent to overtake British and Canadian exports and claim ninth spot. As a result, Canada was pushed out of the top ten leading exporters and into eleventh spot.

Notwithstanding the current recession, and given the appreciating value of its currency, the United States remained far and away the world's largest merchandise importer. Germany and China held the next two positions, unchanged from their 2007 rankings. Japan, France, and the UK exchanged positions between 2007 and 2008, with Japan moving to fourth spot, France becoming the fifth-largest importer, and the U.K. falling to sixth place. Similarly, the Netherlands and Italy exchanged the next two positions, with the Netherlands becoming the world's seventh-largest importer and Italy falling to eighth spot. Belgium held onto its ninth spot, while Korea climbed into tenth spot, pushing Canada out of the top ten leading importers into eleventh spot.

Services Trade

World services exports rose 11 percent in 2008, to US$3.7 trillion (Table 2-3). Exports of transport services rose 15 percent in 2008 while travel services and commercial services both increased 10 percent. Commercial services, which include financial services, accounted for just over half of all services (51.2 percent), while travel and transport each represented about a quarter (25.3 percent and 23.5 percent, respectively) (Table 2-4). The United States remained the largest exporter and importer of commercial services, with exports of US$522 billion and imports of US$364 billion.

Table 2-3World Services Trade by Regions and Selected Countries (US$)

Exports

Imports

2008 Value

2008 Share

2007 Annual change

2008 Annual change

2008 Value

2008 Share

2007 Annual change

2008 Annual change

World

$3,730,000,000,000

100.0%

19%

11%

$3,470,000,000,000

100.0%

18%

11%

North America

$610,000,000,000

16.4%

14%

9%

$473,000,000,000

13.6%

9%

6%

U.S.

$522,000,000,000

14.0%

16%

10%

$364,000,000,000

10.5%

9%

7%

Canada

$62,000,000,000

1.7%

-

2%

$84,000,000,000

2.4%

-

5%

Mexico

$26,000,000,000

0.7%

-

-

$25,000,000,000

0.7%

-

-

Central & South America

$109,000,000,000

2.9%

18%

16%

$117,000,000,000

3.4%

21%

20%

Brazil

$29,000,000,000

0.8%

26%

27%

$44,000,000,000

1.3%

28%

28%

Europe

$1,919,000,000,000

51.4%

21%

11%

$1,628,000,000,000

46.9%

19%

10%

EU (27)

$1,735,000,000,000

46.5%

21%

10%

$1,516,000,000,000

43.7%

19%

10%

Germany

$235,000,000,000

6.3%

16%

11%

$285,000,000,000

8.2%

15%

11%

France

$153,000,000,000

4.1%

15%

6%

$137,000,000,000

3.9%

15%

6%

Italy

$123,000,000,000

3.3%

13%

12%

$132,000,000,000

3.8%

21%

12%

U.K.

$283,000,000,000

7.6%

20%

2%

$199,000,000,000

5.7%

16%

1%

C.I.S.

$83,000,000,000

2.2%

27%

26%

$114,000,000,000

3.3%

30%

25%

Russia

$50,000,000,000

1.3%

27%

29%

$75,000,000,000

2.2%

32%

29%

Africa

$88,000,000,000

2.4%

22%

13%

$121,000,000,000

3.5%

31%

15%

Middle East

$94,000,000,000

2.5%

13%

17%

$1,585,000,000,000

4.6%

29%

13%

Asia

$837,000,000,000

22.4%

20%

12%

$858,000,000,000

24.7%

18%

12%

China

$131,000,000,000

3.5%

33%

-

$156,000,000,000

4.5%

29%

-

Japan

$144,000,000,000

3.9%

10%

13%

$166,000,000,000

4.8%

11%

11%

India

$106,000,000,000

2.8%

22%

-

$91,000,000,000

2.6%

23%

-

NIEs

$271,000,000,000

7.3%

17%

10%

$247,000,000,000

7.1%

15%

7%

Source: WTO and author's calculations.

Table 2-4World Exports of Services in 2008 (US$)

Value

Share

2007-08 Growth

All Services

$3,730,000,000,000

100.0%

11%

Transportation

$875,000,000,000

23.5%

15%

Travel

$945,000,000,000

25.3%

10%

Commercial Services

$1,910,000,000,000

51.2%

10%

Source: WTO and author's calculations.

One indicator of the severity of the global downturn in trade has been the fall-off in international shipping. Using International Air Transport Association (IATA) data, the WTO reports that air cargo traffic was down 23 percent in December 2008 compared to a year earlier, led by a strong decline of 26 percent in the Asia-Pacific region. To put some perspective on the magnitude of this drop, the decline recorded in September 2001, when most of the world's aircraft were temporarily grounded, was only 14 percent.

Another measure that has received a lot of attention recently is the Baltic Dry Index, a measure of the cost of shipping bulk cargo by sea, published by the Baltic Exchange in London, the leading world marketplace for brokering shipping contracts. Movements in the index can be tracked to global demand for manufactured goods. Between June and November of 2008 the Baltic Dry Index fell by 94 percent.

The financial crisis shows up clearly in quarterly data on trade in commercial services for North America. The region's trade, which was growing rapidly in the first nine months of 2008 (13 percent for exports and 10 percent for imports), slowed suddenly in the last quarter (down 2 percent for exports and down 3 percent for imports). The most affected sector was travel, which includes tourism (down 2 percent for exports and down 6 percent for imports). For the year as a whole, North

American exports of services increased by 9 percent, to US$603 billion, while imports grew 6 percent, to US$473 billion.

In Europe last year, exports of services rose by 11 percent, to US$1.9 trillion, while imports advanced 10 percent, to US$1.6 trillion. The impact of the financial crisis is also evident in the quarterly data on European services trade. According to the data, the region's exports of services were growing by 19 percent in the first nine months of 2008, whereas they fell 11 percent in the last quarter. It should be noted that although exchange rate effects in the last quarter of 2008 are likely to have magnified the impact of the crisis on nominal European services trade values, they cannot entirely explain such a large drop.

Leading Services Traders by Value

The United States saw its exports of services rise 10 percent in 2008, to US$522 billion, leaving it by far the top exporter. The U.S. share in world services exports was 14 percent in 2008. The United Kingdom remained the second-largest exporter with a 7.6 percent world share worth US$283 billion.

China remained in seventh place with exports of US$137 billion (3.7 percent of the world total), followed by Italy (3.3 percent, US$123 billion) in eighth place. India ranked ninth with a 2.8-percent share of the 2008 world total, worth US$106 billion, and the Netherlands (2.7 percent, US$102 billion) replaced Ireland as the world's tenth-largest services exporter.

On the import side, the United States stayed in first place, with imports rising 7 percent to US$364 billion (10.5 percent of world imports of services). Germany ranked second, at US$285 billion (8.2 percent of world imports of services). The next three largest services importers were the UK, Japan, and China at US$199 billion (or 5.7 percent of world trade), US$166 billion (or 4.8 percent of the total), and US$152 billion (or 4.4 percent of the total), respectively. France, Italy, Spain and Ireland also registered services imports in excess of US$100 billion, at US$137 billion (3.9 percent of the total), US$132 billion (3.8 percent), US$108 billion (3.1 percent), and US$103 billion (3.0 percent), respectively. The only change in the rankings of the top 10 importers was the addition of the Republic of Korea (US$93 billion, 2.7 percent of the total) in tenth place, displacing the Netherlands which dropped to eleventh place.

5. Data used in this chapter are taken from the World Trade Organization Press Release PRESS/554 entitled World Trade 2008, Prospects for 2009. 23 March 2009. All data are expressed in U.S. dollar terms and rates of growth are calculated from these data. Services data include transportation services, travel services, and commercial services, but exclude government services.